CITY OF PARIS Paris, Kentucky. FINANCIAL STATEMENTS June 30, 2011

Transcription

1 CITY OF PARIS Paris, Kentucky FINANCIAL STATEMENTS June 30, 2011

2 C O N T E N T S Management s Discussion and Analysis Independent Auditors Report Government Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet-Governmental Funds 13 Statement of Revenues, Expenditures, and Changes in Fund Balances-Governmental Funds. 14 Balance Sheet - Proprietary Funds...15 Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Fund..16 Statement of Cash Flows Proprietary Funds Notes to Financial Statements Required Supplemental Information Budget Information Combining Balance Sheet Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds Schedule of Operating Expenses Combined Utility Fund Schedule of Revenue Bond Requirements Utility Fund Report in Accordance with Government Auditing Standards Single Audit Reporting Report in Accordance with OMB A Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs

3 City of Paris, Kentucky Management s Discussion and Analysis Our discussion and analysis of the City of Paris s financial performance provides an overview of the City s financial activities for the fiscal year ended June 30, Please read the following..in conjunction with the auditors report on page 9 and the City s financial statements, which begin to appear on page 10. OVERVIEW OF THIS ANNUAL REPORT This annual report consists of the management s discussion and analysis report, the independent auditors report, the basic financial statements of the City, and the independent auditor s report on compliance. The financial statements also include notes that explain in more detail some of the information in the financial statements. The focus of local government financial statements is both the City as a whole (government-wide) and the fund financial statements. The government-wide financial statements provide both long-term and short-term information about the City s overall financial status. The fund financial statements focus on the individual funds of the City, reporting the City s operations in more detail than the government-wide statements. Both perspectives (government-wide and fund) allow the user to address relevant questions, broaden the basis of comparison (year to year or government to government), and enhance the City s accountability. GOVERNMENT WIDE FINANCIAL STATEMENTS The government-wide statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. One of the most important questions asked about the City s finances is Is the City as a whole better off or worse off as a result of this year s activities? The Statement of Net Assets and the Statement of Activities report information about the City s activities in a way that will help answer this question. -1-

4 These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year s revenues and expenditures are taken into account regardless of when cash is received or paid. These two statements report the net assets of the City and changes in them. One can think of the City s net assets the difference between assets and liabilities as one way to measure financial health or financial position. Over time, increases or decreases in the City s net assets are an indicator of whether its financial health or position is improving or deteriorating. However, one will need to consider other non-financial factors such as changes in economic conditions, population growth, changes in property tax rates or valuation, infrastructure asset condition, and new or changed government legislation. In the Statement of Net Assets and the Statement of Activities, we divide the City into two kinds of activities: Governmental activities Most of the City s basic services are reported here, including general government administration, police, dispatch and streets. Property taxes, licenses and permits, and grants finance most of these activities. Business-type activities The City collects fees from customers to cover the costs of the services, which includes electric, water, sewer and sanitation services. FUND FINANCIAL STATEMENTS Traditional users of government financial statements will find the fund financial statement presentation more familiar. The focus is now on the City s funds. The fund financial statements provide more information about the City s funds and not the City as a whole. The City has two kinds of funds: Governmental Fund Most of the City s basic services are included in governmental funds, which focus on (1) how cash and other financial assets..that can readily be converted to cash..flow in and out, and (2), the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. -2-

5 Because this information does not encompass the additional long-term focus of the government-wide statements, additional information is provided at the bottom the governmental funds statement that explains the relationship (or differences) between them. Proprietary Fund Services for which the City charges customers a fee are generally reported in proprietary funds. NET ASSETS Our analysis begins with a summary of the City s Statement of Net Assets, which is presented on Table A-1 followed by an explanation of the results. Changes in net assets are presented in Table A-2, which is also followed by an explanation of the results. Table A-1 Governmental Business-Type Total Primary Activities Activities Government Current and Other Assets $ 2,141,137 $ 2,804,291 $ 4,945,428 Capital Assets 5,620,491 11,071,786 16,692,277 Total Assets 7,761,628 13,876,077 21,637,705 Long-Term Debt Outstanding 860,135 4,230,753 5,090,888 Current Liabilities 1,039,752 1,874,933 2,914,685 Total Liabilities 1,899,887 6,105,686 8,005,573 Net Assets Invested in Capital Assets net of debt 4,521,229 6,455,224 10,976,453 Restricted 238, , ,246 Unrestricted 1,101, ,906 1,910,433 Total Net Assets $ 5,861,741 $ 7,770,391 $ 13,632,132 The capital assets of the City s governmental activities increased from $4,600,827 in 2010 to $5,620,491 in This increase was a result of purchasing vehicles, equipment and infrastructure for the year. The City elected to record infrastructure assets going forward from July 1, 2003 as allowed by GASB 34. The capital assets of the business-type activities decreased from $11,771,341 in 2010 to $11,071,786 in This decrease was due to depreciation outpacing capital additions for the year. Net assets from one activity generally cannot be used to make up for any deficits in the other activities. -3-

6 Condensed Statement of Activities Table A-2 Governmental Business-type Total Primary Activities Activities Government Revenues Program Revenue Charges for Service $ - $ 8,746,235 $ 8,746,235 General Revenue Tax 656, ,431 Licenses 4,520,138 4,520,138 Intergovernmental 686, ,513 Fines & Forfeits - - Other Revenue 259, , ,472 Total Revenue 6,122,547 8,860,242 14,982,789 Program Expenses City Commission 367, ,384 General Government 1,557,980 1,557,980 Public safety-police 1,814,643 1,814,643 Public safety-fire 2,040,572 2,040,572 Public works-streets 572, ,442 Inspection, engineering, parks 300, ,147 Interest on long-term debt 17,143 17,143 Electric 4,967,200 4,967,200 Water 1,333,694 1,333,694 Sanitation 882, ,111 Sewer 1,833,097 1,833,097 Total Program Expense 6,670,311 9,016,102 15,686,413 Transfers 353,052 (353,052) - Net Change in Net Assets $ (194,712) $ (508,912) $ (703,624) The City s change in Net Assets above appears to be analogous to the long-standing concept of net revenues, but under the full accrual basis utilized by the Governmental Activities these numbers include paper depreciation expenses that are not cash expenditures of the City. Therefore, these paper bookkeeping entries are never considered as part of the City s budget process. Additionally, the principal portions of debt obligations are excluded from the above but are reflected as debt service expenditures along with capital outlay expenditures in the City s budget for governmental activities. The business-type activities have always been on the full accrual basis. -4-

7 GOVERNMENTAL ACTIVITIES Table A-3 details a condensed statement of the fiscal year s governmental activities. Table A-3 Condensed Governmental Activities Revenues & Expenditures Taxes $ 656,431 Licenses and permits 4,520,138 Intergovernmental 686,513 Fines & forfeits 0 Other revenues 259,465 Total Revenues 6,122,547 City Commission 367,384 General administration 1,442,209 Public safety-police 1,732,669 Pubic safety-fire 1,922,472 Public works-streets 511,812 Inspection, engineering, & parks 293,935 Capital outlay 1,402,352 Debt service 416,143 Total Expenditures 8,088,976 Excess Expenditures over Revenues before other Financing sources $(1,966,429) The bottom number of Table A-3 above, should not be confused with the end-of-year Fund Balance figure shown in the City s General Fund Budget, because the above does not reflect the General Fund s beginning-of-year balance and any debt proceeds received during the fiscal year. -5-

8 BUDGET HIGHLIGHTS Over the course of the fiscal year, the City amended both the General Fund and Utility Fund Budgets. These amendments were made shortly after the beginning of the calendar year to reflect the actual beginning balances shortly after the beginning of said calendar year or due to unusual events that may potentially occur. The budget contains proposed expenditures and expected revenues. A comparison of the final amended budget to actual amounts for governmental activities is presented in the table below (Tables A-4 & 5). Table A-4 Condensed Governmental Activities- Revenues Budget Actual Change Taxes $ 879,630 $ 656,431 $ (223,199) Licenses and permits 4,449,779 4,520,138 70,359 Intergovernmental 557, ,938 (52,462) Fines & Forfeits (350) Other Revenues 134, , ,531 Total Revenues $6,022,059 $ 5,938,938 $ (83,121) Table A-5 Condensed Governmental Activities- Expenditures Budget Actual Change General Government & Capital Budgeting $1,597,121 $3,407,725 $1,810,604 Public Safety- Police 1,970,302 1,732,669 (237,633) Public Safety- Fire 2,799,950 1,922,472 (877,478) Public Works- Streets 715, ,812 (204,115) Debt Service Total Expenditures $7,083,300 $7,574,678 $ 491,378 The City budgeted for a total of $6,022,059 in revenues for 2011, but ended up having revenues of $5,938,938. In other words, the City received 1.4 percent less revenue than budgeted. A total of $7,083,300 was budgeted for expenses, but expenditures totaled $7,574,678 at the end of The City was over budget on the expenses by 6.9 percent. -6-

9 CAPITAL ASSETS Table A-1 showed summary totals for a broad range of capital assets, including police and fire equipment and vehicles, buildings, land, roads, bridges, storm sewers, and all of the equipment and materials involved in the operation of an electric, water and sanitary sewer utility. Table A-5 shows the breakdown of non-depreciated capital assets for both governmental and business-type activities. Table A-6 Capital Assets at Year End Without Depreciation Governmental Business-type Total Primary Activities Activities Government Land $ 966,979 $ - $ 966,979 Infrastructure 1,785,718-1,785,718 Buildings 3,298,373-3,298,373 Vehicles 2,816,201-2,816,201 Equipment 731,573 2,765,278 3,496,851 Electric System - 7,446,797 7,446,797 Water System - 6,734,279 6,734,279 Sewer System - 16,733,822 16,733,822 Total Capital Assets $ 9,598,844 $ 33,680,176 $ 43,279,020-7-

10 DEBT Table A-7 provides a summary of all of the City s outstanding indebtedness. Table A-7 Governmental Business-type Total Primary Debt Outstanding at Year End Activities Activities Government Leases $ 253,846 $ 231,429 $ 485,275 Notes Payable - 3,312,133 3,312,133 Bond Payable 845,416 1,073,000 1,918,416 Total Debt Outstanding $ 1,099,262 $ 4,616,562 $ 5,715,824 ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The City s elected officials consider many factors when setting the fiscal year 2011 budget. Some of the factors are the local economy, expected grant money, and anticipated tax revenue. They remain sensitive to unfunded mandates from the State and Federal governments, while trying to best meet the needs of the community within the framework of fiscal responsibility. CONTACTING THE CITY S FINANCIAL MANAGEMENT This financial report is designed to provide the citizens of the City, taxpayers, customers, and investors and creditors with a general overview of the City s finances.and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City Manager at 525 High Street, Paris, Kentucky. -8-

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12 Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 1 through 8 and 31 through 33 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Paris, Kentucky s financial statements as a whole. The introductory section and combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Ray, Foley, Hensley & Company Ray, Foley, Hensley & Company, PLLC December 6,

13 STATEMENT OF NET ASSETS June 30, 2011 Primary Government Governmental Business-type 2010 Activities Activities Total Totals ASSETS Current assets Cash and cash equivalents $ 746,547 $ 474,467 $ 1,221,014 $ 1,578,799 Receivables (net) 1,122,927 1,100,318 2,223,245 1,802,291 Internal balances 217, ,791 74,069 Total current assets 2,087,265 1,574,785 3,662,050 3,455,159 Noncurrent assets Restricted cash and cash equivalents - 723, , ,304 Capital assets (Note 3) Land and improvements 966, , ,979 Depreciable infrastructure, net 1,562,045-1,562, ,654 Depreciable buildings, property and equipment, net 3,091,467 11,071,786 14,163,253 14,605,535 Other assets 53, , , ,201 Total noncurrent assets 5,674,363 12,301,292 17,975,655 17,612,673 Total assets $ 7,761,628 $ 13,876,077 $ 21,637,705 $ 21,067,832 LIABILITIES Current liabilities Accounts payable $ 131,824 $ 867,532 $ 999,356 $ 846,791 Accrued leave payable 618, , , ,078 Accrued liabilities - 27,359 27,359 33,404 Other liabilities - 240, , ,663 Internal balances - 217, ,791 74,069 Deferred revenue 50,000-50,000 65,040 Current portion of long-term obligations (Notes 4 & 5) 239, , , ,920 Total current liabilities 1,039,752 1,874,932 2,914,684 2,116,965 Noncurrent liabilities Noncurrent portion of long-term obligations (Notes 4 & 5) 860,135 4,230,753 5,090,888 4,615,110 Total liabilities 1,899,887 6,105,685 8,005,572 6,732,075 NET ASSETS Invested in capital assets, net of related debt 4,521,229 6,455,224 10,976,453 11,375,138 Restricted for: Debt service - 506, , ,627 Other purposes 238, , ,531 Unrestricted 1,101, ,907 1,910,434 2,440,461 Total net assets 5,861,741 7,770,392 13,632,133 14,335,757 Total liabilities and net assets $ 7,761,628 $ 13,876,077 $ 21,637,705 $ 21,067,832 The accompanying notes are an integral part of the financial statements. -11-

14 STATEMENT OF ACTIVITIES for the year ended June 30, 2011 Net (Expense) Revenue and Program Revenues Changes in Net Assets Operating Capital Primary Government Charges for Grants and Grants and Governmental Business-type 2010 Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Totals Primary government Governmental activities City commission $ 367,384 $ - $ - $ - $ (367,384) $ - $ (367,384) $ (208,797) General government 1,557,980-59, ,578 (1,255,542) - (1,255,542) (1,422,360) Public safety-police 1,814, ,834 9,074 (1,697,735) - (1,697,735) (1,768,322) Public safety-fire 2,040,572-85,592 - (1,954,980) - (1,954,980) (1,581,535) Public works-streets 572, ,575 - (390,867) - (390,867) (404,183) Inspection, engineering, parks & rec 300, (300,147) - (300,147) (305,028) Interest on long-term debt 17, (17,143) - (17,143) (17,199) Total governmental activities 6,670, , ,652 (5,983,798) - (5,983,798) (5,707,424) Business-type activities Electric 4,967,200 4,654, (312,701) (312,701) (89,078) Sanitation 882, , ,273 65,273 (40,003) Water 1,333,694 1,331, (1,723) (1,723) 13,166 Sewer 1,833,097 1,812, (20,717) (20,717) (131,125) Total business-type activities 9,016,102 8,746, (269,867) (269,867) (247,040) Total primary government $ 15,686,413 $ 8,746,236 $ 434,861 $ 251,652 (5,983,798) (269,867) (6,253,665) (5,954,464) General revenues Taxes Property taxes, levied for general purposes 656, , ,673 License fees: Franchise 160, , ,111 Payroll 2,532,353-2,532,353 2,421,500 Insurance premiums 1,449,132-1,449,132 1,702,770 Net profit 361, , ,286 Other licenses and permits 15,918-15,918 29,717 Fines and forfeits Investment earnings 9,292 11,809 21,101 17,518 Rents 96,106 57, , ,004 Miscellaneous 154,067 44, , ,326 Total general revenues 5,436, ,007 5,550,041 5,617,395 Transfers 353,052 (353,052) - - Change in net assets (194,712) (508,912) (703,624) (337,069) Net assets-beginning 6,056,453 8,279,304 14,335,757 14,672,826 NET ASSETS-ENDING $ 5,861,741 $ 7,770,392 $ 13,632,133 $ 14,335,757 The accompanying notes are an integral part of the financial statements. -12-

15 BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2011 Other Total Governmental Governmental 2010 General Funds Funds Totals ASSETS Cash and cash equivalents $ 507,562 $ 238,985 $ 746,547 $ 985,129 Receivables, net 1,122,927-1,122,927 1,088,920 Due from other funds 217, ,791 74,069 Other assets 53,872-53,872 54,044 Total assets $ 1,902,152 $ 238,985 $ 2,141,137 $ 2,202,162 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 131,824 $ - $ 131,824 $ 148,896 Accrued leave payable 618, , ,195 Deferred revenue 50,000-50,000 65,040 Total liabilities 800, , ,131 FUND BALANCES Restricted - 238, , ,531 Unassigned 1,101,527-1,101,527 1,519,500 Total fund balances 1,101, ,985 1,340,512 1,673,031 Total liabilities and fund balance $ 1,902,152 $ 238,985 $ 2,141,137 $ 2,202,162 Amounts reported for governmental activities in the statement of net assets are different because : Fund balances per above $ 1,340,512 $ 1,673,031 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 5,620,491 4,600,827 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are reported in the funds. (1,099,262) (217,405) Net assets of governmental activities $ 5,861,741 $ 6,056,453 The accompanying notes are an integral part of the financial statements. -13-

16 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS for the year ended June 30, 2011 Other Total Governmental Governmental 2010 General Funds Funds Totals REVENUES Taxes $ 656,431 $ - $ 656,431 $ 764,673 Licenses and permits 4,520,138-4,520,138 4,568,384 Fees and fines Intergovernmental 504, , , ,249 Other revenues 257,431 2, , ,612 Total revenues 5,938, ,609 6,122,547 5,956,408 EXPENDITURES Current City commission 367, , ,797 General administration 1,442,209-1,442,209 1,414,776 Public safety-police 1,732,669-1,732,669 1,808,808 Public safety-fire 1,922,472-1,922,472 1,564,812 Public works 511, , ,709 Inspection, engineering, parks & recreation 293, , ,934 Capital outlay 1,304,197 98,155 1,402, ,744 Debt service - 416, ,143 60,792 Total expenditures 7,574, ,298 8,088,976 6,071,372 Excess (deficiency) of revenues over expenditures (1,635,740) (330,689) (1,966,429) (114,964) OTHER FINANCING SOURCES (USES) Loan proceeds - 1,280,858 1,280,858 - Transfers 1,217,767 (864,715) 353, ,961 Total other financing sources (uses 1,217, ,143 1,633, ,961 Net change in fund balances (417,973) 85,454 (332,519) 448,997 Fund balances-beginning 1,519, ,531 1,673,031 1,224,034 Fund balances-ending $ 1,101,527 $ 238,985 $ 1,340,512 $ 1,673,031 Reconciliation to government-wide change in net assets Net change in fund balances $ (332,519) $ 448,997 add: capital outlay expenditures 1,402, ,744 add: debt service expenditures 416,143 60,792 less: debt proceeds (1,280,858) - less: depreciation on governmental activities assets (382,687) (337,638) less: interest on long-term deb (17,143) (17,199) Change in net assets Governmental Activitie $ (194,712) $ 348,696 The accompanying notes are an integral part of the financial statements. -14-

17 BALANCE SHEET PROPRIETARY FUNDS June 30, 2011 Business-Type Activities 2010 Utility Fund Totals ASSETS Current assets Cash and cash equivalents $ 474,467 $ 593,670 Receivables (net) 1,100, ,371 Total current assets 1,574,785 1,307,041 Noncurrent assets Restricted cash and cash equivalents 723, ,304 Other assets 505, ,157 Capital assets Utility systems 33,680,176 33,256,906 Less accumulated depreciation (22,608,390) (21,485,565) Total non current assets 12,301,292 12,957,802 Total assets $ 13,876,077 $ 14,264,843 LIABILITIES Current liabilities Accounts payable $ 867,532 $ 697,895 Meter deposits 240, ,663 Accrued leave payable 135, ,883 Accrued interest payable 27,359 33,404 Other payables 217,791 74,069 Current portion of long-term debt 385, ,166 Total current liabilities 1,874,932 1,556,080 Noncurrent liabilities Bonds, notes and loans payable 4,230,753 4,429,459 Total noncurrent liabilities 4,230,753 4,429,459 Total liabilities 6,105,685 5,985,539 NET ASSETS Invested in capital assets, net of related debt 6,455,224 6,991,716 Restricted for debt service 506, ,627 Unrestricted 808, ,961 Total net assets 7,770,392 8,279,304 Total liabilities and net assets $ 13,876,077 $ 14,264,843 The accompanying notes are an integral part of the financial statements. -15-

18 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS for the year ended June 30, 2011 Business-type Activities 2010 Utility Fund Totals Operating revenues Charges for services $ 8,848,433 $ 7,934,311 Total operating revenues 8,848,433 7,934,311 Operating expenses Utility administration 445, ,061 Electric department 4,592,158 3,472,215 Water distribution 1,020, ,190 Sewer treatment 982, ,166 Sanitation 743, ,924 Depreciation 1,122,825 1,084,257 Total operating expenses 8,906,089 8,002,813 Operating income (loss) (57,656) (68,502) Nonoperating revenues (expenses) Donated assets - 58,650 Interest and investment revenue 11,809 10,330 Interest expense (110,013) (122,282) Total nonoperating revenue (expenses) (98,204) (53,302) Transfers (353,052) (563,961) Change in net assets (508,912) (685,765) Total net assets-beginning 8,279,304 8,965,069 TOTAL NET ASSETS-ENDING $ 7,770,392 $ 8,279,304 The accompanying notes are an integral part of the financial statements. -16-

19 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS for the year ended June 30, 2011 Business-Type Activities 2010 Utility Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 8,461,486 $ 7,772,351 Payments to suppliers (5,370,165) (4,430,081) Payments for employee services and benefits (2,350,535) (2,218,095) Customer deposits 13,190 10,360 Net cash provided by operating activities 753,976 1,134,535 CASH FLOWS FROM NON- CAPITAL AND RELATED FINANCING ACTIVITIES Payment under interfund agreements 143,722 45,691 Net cash provided by non-capital and related financing activities 143,722 45,691 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (429,315) (178,881) Proceeds from bonds, notes, and loans payable 219,664 - Principal payments on bonds, notes, and loans payable (382,727) (342,998) Transfers to general fund (353,052) (563,961) Interest paid on capital debt (110,013) (117,456) Net cash (used) by capital and related financing activities (1,055,443) (1,203,296) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends 11,809 10,330 Net cash provided by investing activities 11,809 10,330 Net increase (decrease) in cash and cash equivalents (145,936) (12,740) Balances-beginning of the year 1,343,974 1,356,714 BALANCES-END OF THE YEAR $ 1,198,038 $ 1,343,974 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ (57,656) $ (68,502) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 1,122,825 1,084,257 Change in assets and liabilities: Receivables, net (386,947) (161,960) Inventory (69,778) 24,503 Other assets 0 35,718 Customer deposits 13,190 10,360 Accounts and other payables 169, ,559 Accrued expenses (37,295) 49,600 Net cash provided by operating activities $ 753,976 $ 1,134,535 The accompanying notes are an integral part of the financial statements. -17-

20 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Paris, Kentucky (the City) operates under the City Manager form of government and provides the following services as authorized by its charter: public safety, public works, recreation and community development. The accounting policies of the City of Paris conform to generally accepted accounting principles applicable to governmental units. The following is a summary of the more significant accounting policies. A. Reporting Entity The financial statements of the City of Paris, Kentucky include the funds, account groups and entities over which the Mayor and Commission exercise significant oversight responsibility. Oversight responsibility, as defined by Section 2100 of the GASB Codification of Governmental Accounting and Financial Reporting Standards, was determined on the basis of the City's ability to significantly influence operations, select the governing body, participate in fiscal management and the scope of public service. The only entity included in the financial statements is the Paris, Kentucky Public Properties Corporation. The following entities have been excluded from the financial statements because they do not meet the criteria described above: 1. Paris-Bourbon County Community Development Agency 2. Paris-Bourbon County Emergency Medical Services 3. Paris Independent Schools 4. Paris-Bourbon County E Paris-Bourbon County Tourism Commission B. Basis of Presentation The City's financial statements are presented in conformity with the provisions of Governmental Accounting Standards Board Statement No 34, Basic Financial Statements-and Management s Discussion and Analysis-for State and Local Governments and consist of the following: Management s discussion and analysis (required supplementary information) Basic Financial Statements Government-wide financial statements Fund financial statements Notes to the financial statements Government-wide Financial Statements The government-wide financial statements include a statement of net assets and the statement of activities. These statements display information about the City as a whole. The statements distinguish between governmental and business-type activities of the City. These financial statements include the financial activities of the City except for fiduciary activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely on fees and charges for support. The government-wide statement of activities reflects costs of government by function for governmental activities and business-type activities. Program revenues include charges paid by recipient for the goods or services offered by the program and grants or contributions that are restricted to the program. Revenues which are not classified as program revenues are presented as general revenues of the City. -18-

21 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Basis of Presentation (continued) Fund Financial Statements Fund financial statements report detailed information about the City. The accounts of the City are organized on the basis of funds each of which is considered to be a separate fiscal and accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that is comprised of its assets, liabilities, reserves, fund equity, revenues and expenditures or expenses. Governmental Funds are those through which most governmental functions are financed. The governmental fund measurement focus is upon determination of financial position and budgetary control over revenues and expenditures. Proprietary Fund Types are used to account for operations that are financed and operated in a manner similar to business enterprises - where intent of the governing body is that costs of providing services are to be financed or recovered primarily through user charges. The following funds are used by the City of Paris: Governmental Funds General Fund - The general operating fund of the City is used to account for all financial resources except those required to be accounted for in another fund. Most of the essential governmental services such as police and fire protection, community services and general administration are reported in this fund. Special Revenue Funds - The Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or major capital projects) that are restricted by law to be expended for specific purposes. The following Special Revenue Funds are maintained by the City: Municipal Road Aid Fund - A special revenue fund used to account for state municipal road aid. GO Bond and Debt Service Funds - The Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. Proprietary Funds Proprietary Funds are used to account for the ongoing organizations and activities of the City, which are similar to those found in private business enterprises. The measurement focus is upon determination of net income, financial position, and changes in cash flows. -19-

22 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Basis of Presentation (continued) Enterprise Funds are established to account for the acquisition, operations and maintenance of the City's facilities and services which are entirely or predominantly self-supported by user charges or where the City has decided that periodic determination of revenues earned, expenses incurred, and net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The accounts are maintained on the accrual basis of accounting. The City applies Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict Governmental Accounting Standards Board (GASB) pronouncements, in which case, GASB prevails. The City's enterprise operations include the following: Combined Utilities Fund The Combined Utilities Fund accounts for the electric, water, sewer, and garbage disposal and incinerator services provided to residents of the City and surrounding areas, the operations of which are financed by user charges. C. Basis of Accounting Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. Government-wide Financial Statements The Statement of Net Assets and the Statement of Activities display information about the City as a whole. The government-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements therefore include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for individual funds. Fund Financial Statements The financial transactions of the City are recorded in individual funds. Their focus is on individual funds rather than reporting funds by type. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financials resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. All governmental funds are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when they become measurable and available. "Available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures, other than interest on long-term debt, are recorded when the liability is incurred. Proprietary funds are accounted for using the accrual basis of accounting. Their revenues are recognized when they are earned, and expenses are recognized when they are incurred. -20-

23 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Basis of Accounting (continued) Permits, fines and forfeits, and miscellaneous revenues (except for investment earnings) are recorded as revenues when received because they are generally not measurable until actually received. Investment earnings are recorded when earned since they are measurable and available in all funds. D. Fund Equity In fund financial statements, the difference between the assets and liabilities of governmental funds is reported as fund balance. Fund balance is divided into nonspendable and spendable components, if applicable. The City has adopted GASB 54 which further breaks down both nonspendable and spendable components into the following components: Nonspendable - amounts that must be maintained intact legally or contractually. Restricted amounts constrained for a specific purpose by external parties, constitutional provisions or enabling legislation. Committed amounts constrained for a specific purpose by the City using its highest level of decision making authority. Assigned for all governmental funds, other than the general fund, any remaining positive amounts not classified as nonspendable, restricted or committed. For the general fund, amounts constrained, by intent, to be used for a specific purpose by the City or the elected City official given authority to assign amounts. Unassigned for the general fund, amounts not classified as nonspendable, restricted, committed or assigned. For all other government funds, amounts expended in excess of resources that are nonspendable, restricted, committed or assigned. For resources considered to be committed, the City issues an ordinance that can be changed with another corresponding ordinance. For resources considered to be assigned, the City has designated the Mayor to carry the intent of the City commission. It is the policy of the City to spend restricted funds first when both restricted and unrestricted funds are available. Once restricted funds are spent, the City will use committed funds first, assigned funds second and unassigned funds last. E. Budgeting The City follows the procedures established pursuant to Section 91A.030 of the Kentucky Revised Statutes in establishing the budgetary data reflected in the financial statements. Budgets for all funds are adopted on a basis consistent with generally accepted accounting principles. Budgeted amounts in the financial statements are as adopted by ordinance of the City. The City began allocating expenses from the General Fund to the Utilities Fund on a reimbursement basis. These reimbursements are included in Transfers in the financial statements. Total expenses reimbursed to the General Fund from the Utilities Fund amounted to $353,

24 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Other Accounting Policies Accounts receivable from customers are stated less an allowance for doubtful accounts of $30,000 in the proprietary fund. Investments are reported at fair value. Investments of the city consist of certificates of deposits and U.S. government obligations. These funds are invested for periods that comply with cash flow requirements of bond ordinances and general government services. Cash and cash equivalents Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less. The City of Paris considers all cash, both restricted and unrestricted, as cash for purposes of the Statement of Cash Flows. Inventories are valued at the lower of cost (first-in, first-out) or market. The cost is recorded as an expenditure at the time individual inventory items are purchased. Inventory of the Combined Utility Fund consists of materials, supplies and fuel. Interest costs are capitalized when incurred by proprietary funds on debt where proceeds were used to finance the construction of assets. Bond discounts and issue costs are being amortized over the life of the bonds using the straight-line method. Deferred revenues represent grant revenues received but unearned. Revenues are recognized when eligible expenditures are incurred. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed by the City of Paris. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. CASH AND INVESTMENTS Under Kentucky Revised Statute the City is allowed to invest in obligations of the U.S. Treasury and U.S. agencies, obligations of the Commonwealth of Kentucky and its agencies, insured savings and loans, or interest bearing deposits of insured national or state banks. The City of Paris deposits and investments at June 30, 2011 were fully covered by federal depository insurance or by collateral held by the custodial banks in the City s name. The book balances of the City s deposits were $1,944,585 and the bank balances were $1,977,

25 NOTES TO FINANCIAL STATEMENTS June 30, CAPITAL ASSETS A summary of capital asset activity during the fiscal year follows: Balance Balance July 1, 2010 Additions Deletions June 30, 2011 Government Type Activities Capital assets not depreciated: Land and Improvements $ 966,979 $ - $ - $ 966,979 Capital assets that are depreciated: Building and Improvements 3,243,700 54,673-3,298,373 Vehicles 2,495, ,858-2,816,201 Equipment 532, , ,573 Totals 6,271, ,039-6,846,147 Total Non-Infrastructure Assets 7,238, ,039-7,813,126 Recording infrastructure Assets: Infrastructure Assets 958, ,312-1,785,718 Total Capital Assets 8,196,492 1,402,352-9,598,844 Less Accumulated Depreciation: Building and Improvements 1,562,072 77,357-1,639,429 Vehicles 1,505, ,801-1,694,847 Equipment 369,795 50, ,403 Infrastructure Assets 158,752 64, ,672 Totals 3,595, ,686-3,978,351 Depreciable capital assets, net $ 4,600,827 $ 1,019,664 $ - $ 5,620,491 Business-Type Activities Equipment & Vehicles $ 2,760,941 $ 4,337 $ - $ 2,765,278 Electric Lines, Poles, and Plant 7,096, ,901-7,446,797 Water Treatment Plant, Land and Water System Improvements 6,714,280 19,999-6,734,279 Sewer Treatment Plant, Land and Improvements 16,684,789 49,033-16,733,822 Total 33,256, ,270-33,680,176 Less Accumulated Depreciation 21,485,565 1,122,825-22,608,390 Capital Assets, Net $ 11,771,341 $ (699,555) $ - $ 11,071,786 Depreciation Expense was charged to the Governmental functions as follows: General government $ 115,771 Police 81,974 Fire 118,100 Parks & Recreation 6,212 Public works 60,630 Total Depreciation Expense $ 382,

26 3. CAPITAL ASSETS (Continued) CITY OF PARIS, KENTUCKY NOTES TO FINANCIAL STATEMENTS June 30, 2011 Capital assets acquired are recorded at cost or estimated cost. Depreciation of capital assets is provided over the estimated useful lives of the respective assets using the straight-line basis. The estimated useful lives are as follows: Infrastructure Buildings Improvements Vehicles, furniture and equipment years years years 3-20 years 4. BUSINESS-TYPE ACTIVITIES - LONG-TERM DEBT Kentucky Infrastructure Loan The City of Paris entered into a long-term financing assistance agreement with the Kentucky Infrastructure Authority in December 1999 to provide financing for utility system improvements. The note totaled $6,345,954. The note accrues interest at 1.8% and is amortized over twenty years. The annual debt service is approximately $390,000. The following summarizes the changes in the note payable during the fiscal year: Note balance at July 1, 2010 $ 3,629,096 Note principal payments (316,963) Note balance at June 30, 2011 $ 3,312,133 Following is a summary of principal and interest requirements for the utility fund obligation: Principal Interest Service Fee Total 2012 $ 322,694 $ 58,173 $ 6,464 $ 387, ,528 52,338 5, , ,469 46,398 5, , ,516 40,350 4, , ,673 34,193 3, ,665 Thereafter 1,639,253 74,648 8,293 1,722,193 Total $ 3,312,133 $ 306,100 $ 34,009 $ 3,652,

27 NOTES TO FINANCIAL STATEMENTS June 30, BUSINESS-TYPE ACTIVITIES - LONG-TERM DEBT (Continued) Lease Payable The City of Paris entered into a long-term financing agreement with CNH Capital for a backhoe during fiscal year ended June 30, The cost of the backhoe was $68,633 with 58 payments of $1,290 beginning in August of The lease matures on May 1, 2013 and carries an interest rate of approximately 3.5%. Following is a summary of principal and interest requirements for the utility fund obligation: Principal Interest Total 2012 $ 14,711 $ 773 $ 15, , ,860 Total $ 26,325 $ 1,019 $ 27,344 Lease Payable The City of Paris entered into a long-term financing agreement with Leasing One Corporation for an F- 150 truck during fiscal year ended June 30, The cost of the truck was approximately $30,000 with 5 payments of $7,328 beginning in December of The lease matures in December 2014 and carries an interest rate of approximately 5%. Following is a summary of principal and interest requirements for the utility fund obligation: Principal Interest Total 2012 $ 6,000 $ 1,328 $ 7, ,000 1,328 7, ,000 1,328 7,328 Total $ 18,000 $ 3,984 $ 21,984 Lease Payable The City of Paris entered into a long-term financing agreement with PNC Equipment Finance for a Terex Telelect C5048 Digger Derrick during fiscal year ended June 30, The cost of the equipment was approximately $220,000 with bi-annual payments of $18,876 beginning in July The lease matures in January 2017 and carries an interest rate of approximately 2%. Following is a summary of principal and interest requirements for the utility fund obligation: Principal Interest Total ,405 9,347 $ 37, ,846 7,905 37, ,360 6,392 37, ,951 4,801 37, ,622 3,129 37, ,920 1,372 31,292 Total $ 187,104 $ 32,946 $ 220,

28 NOTES TO FINANCIAL STATEMENTS June 30, BUSINESS-TYPE ACTIVITIES - LONG-TERM DEBT (Continued) PROPRIETARY FUND CHANGES IN BONDS PAYABLE The City of Paris entered into a long-term financing assistance agreement with the Rural Development Authority in 2006 to provide financing for utility system improvements. The note totaled $1,111,000. The note accrues interest at 4.125% and is amortized over forty years. Issued Balance (Retired) Balance Outstanding During Outstanding Issued Rate 6/30/10 Year 6/30/ Series $1,111, % $ 1,086,000 $ (13,000) $ 1,073,000 Following is a summary of principal and interest requirements for the 2005 Series obligation: Principal Interest Total 2012 $ 14,000 $ 43,395 $ 57, ,000 43,973 57, ,000 42,797 57, ,000 42,158 58, ,000 41,498 57,498 Thereafter 998, ,840 1,739,840 Total $ 1,073,000 $ 955,661 $ 2,028,661 The total business-type long-term debt is summarized as follows: Current portion $ 385,809 Long-term portion 4,230,753 Total $ 4,616, GOVERNMENT ACTIVITIES - LONG-TERM DEBT A summary of changes in governmental long-term debt follows: Balance Balance July 1, 2010 Additions Deletions June 30, 2011 Kentucky Bond Corporation $ - $ 940,000 $ 94,584 $ 845,416 Fifth Third Lease-Purchase - 340,858 87, ,846 Farmers Bank Loan 217, ,405 - $ 217,405 $1,280,858 $ 399,001 $1,099,262 Farmers Bank Loan The City obtained a loan in the amount of $330,106 for capital improvements in The loan was to mature on March 15, 2016 and carried an interest rate of 7%. The City used the proceeds from the Kentucky Bond Corporation bond issuance (see below) to pay off this loan in November

29 NOTES TO FINANCIAL STATEMENTS June 30, GOVERNMENT ACTIVITIES - LONG-TERM DEBT (Continued) Fifth Third Bank Lease In January 2011, the City of Paris entered into a long-term financing agreement with Fifth Third Bank covering nine vehicles, eight federal signal light packages, a backhoe, and a dump truck. The total cost was approximately $340,000. The lease requires annual payments including principal and interest of $89,920 beginning in April The lease matures in April 2014 and carries an interest rate of approximately 3%. Following is a summary of principal and interest requirements for the general fund obligation: Principal Interest Total 2012 $ 82,044 $ 7,876 $ 89, ,589 5,330 89, ,213 2,706 89,919 Total $ 253,846 $ 15,912 $ 269,758 Kentucky Bond Corporation In November 2010, the City entered into a long-term financing assistance agreement with the Kentucky Bond Corporation, Financing Program Revenue Bonds, 2010 First Series C to provide financing for resurfacing, regrinding, and repaving of neighborhood streets. The bond totaled $940,000. The bond carries an interest rate of approximately 1% and matures January Following is a summary of principal, interest, and expense requirements for the Kentucky Bond Corporation general fund obligation: Principal Interest Expenses Total 2012 $ 157,083 $ 21,258 $ 2,564 $ 180, ,000 18,167 2, , ,083 14,917 1, , ,000 11,738 1, , ,083 8,587 1, , ,083 5, , ,084 1, ,951 Total $ 845,416 $ 82,054 $ 10,428 $ 937,898 The total government activities long-term debt is summarized as follows: Current portion $ 239,127 Long-term portion 860,135 Total $ 1,099,